Everything You Need to Know About Redundancy Pay

Statutory redundancy pay

Redundancy can be a financially worrying time for affected employees, so it is important for you to have a good understanding of your rights regarding redundancy pay.

If you have worked for your employer as an employee for at least 2 years, you are legally entitled to receive statutory redundancy pay in the event you are made redundant. However, this does not apply for certain industries. Namely, employees in the following fields do not qualify for redundancy pay:

  • Armed forces;
  • Crown servants;
  • Domestic service where you are your employer’s immediate relative;
  • Police forces.

Calculating redundancy pay

Your statutory redundancy pay will depend on your age and the duration of your employment with your employer. It will be calculated based on your weekly gross pay, inclusive of any guaranteed overtime stated in your contract and any bonuses or commission. If your weekly pay varies, the amount will be calculated based on your average hourly rate over a given 12 week period. Your employer must inform you in writing how your statutory redundancy pay has been calculated.

Your pay may differ slightly from the statutory amount, depending on whether your contract states any further redundancy pay entitlement. You may not receive statutory redundancy pay if you have turned down a suitable alternative job offered to you by your employer.

Statutory redundancy pay will be calculated as follows:

  • Employees aged 17 to 21 must receive half a week’s pay for each full year of your employment.
  • Employees aged 22 to 40 must receive 1 week’s pay for each full year of your employment since you turned 22, and half a week’s pay for each full year of your employment prior to this.
  • Employees aged 41 and over must receive 1.5 week’s pay for each full year of your employment since you turned 41, 1 week’s pay for each full year of your employment since you turned 22, and half a week’s pay for each full year of your employment prior to you turning 22.

Calculating redundancy pay when you receive payment in lieu of notice

In the event that you are paid for your notice period but stopped work immediately after receiving notice of your redundancy, you will receive what is known as payment in lieu of notice (PILON).

To calculate your statutory redundancy pay, your employer must establish the length of your employment based on the relevant date on which your employment ended. If you have received payment in lieu of notice, this relevant date will be considered as the date your employment would have ended had you worked your full statutory notice period. If your contract states you have an enhanced notice period, these notice period weeks will be added onto the relevant date.

Limits on statutory redundancy pay

There are the following limits on statutory redundancy pay:

  • The maximum total redundancy pay is £21,000;
  • The maximum weekly amount used to calculate redundancy pay is £700, even if your salary is higher than this per week;
  • You can only receive statutory redundancy pay for up to 20 years of employment.

If your contract states any further redundancy pay entitlement, this will be added onto your total statutory redundancy pay.

When you will receive redundancy pay

You should receive your redundancy pay on or before your final payday. Your employer should inform you of your redundancy payment date, and how you will be paid, in writing. If you agree to a different payment date with your employer, this should also be confirmed in writing.

If you do not receive your redundancy pay, you should write to your employer as soon as possible stating your entitlement and including any evidence. You should ask your employer to make the redundancy payment by a specified date and allow your employer a reasonable amount of time to fulfil your request. If this is unsuccessful, you can make a claim to an employment tribunal.

If your employer is insolvent

The Redundancy Payments Service (RPS) is able to receive applications for redundancy pay from employees who have been made redundant from an insolvent company.

If your employer has not registered as insolvent but is no longer trading, you may be able to make an employment tribunal claim. Alternatively, you will be able to contact the Redundancy Payments Service if your employer registers as insolvent at a later date.

365 Employment Law advises employers and employees across Sussex in all aspects of employment law. Based out of our office in Worthing, West Sussex, we support employers in a range of contentious and non-contentious employment law matters and provide expert advice to employees at all stages of the employment relationship. If you’re looking for employment law advice and support, get in touch with our friendly team today for an informal conversation about your needs.

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